GAMCO Natural Resources, Gold & Income Trust: Similar But Different Discounted CEF Opportunity

Summary GNT invests in hard assets and trades at a discount to NAV, like its sibling GGN. GNT, however, has a more diversified portfolio and doesn’t use leverage. Although GNT has a lower yield than GGN, it may be a better option for some investors. GAMCO Natural Resources, Gold & Income Trust (NYSE: GNT ) is a sister fund to GAMCO Global Gold, Natural Resources & Income Trust (NYSEMKT: GGN ), another closed-end fund, or CEF, that I recently wrote about . GNT shares many similarities with its older sibling, but the differences could make it more appropriate for some investors looking for a combination of hard asset exposure, income, and “outsourcing.” The same but different Like GGN, GNT is heavily invested in the precious metals, mining, energy, and energy services sectors (this quartet makes up around 80% of its portfolio). That fits tightly with its name and is roughly similar to GGN’s allocation. GNT, however, has more leeway in its security selection, putting another 15% of assets in the specialty chemicals, agriculture, and machinery sectors. This is likely the reason for the very slight difference in the naming of these two closed-end funds. (Note the switched places of natural resources and gold in the two names.) What it means for investors is that GNT is a bit more diversified. That can be a good thing on one hand, but also tells you that this CEF isn’t a pure play precious metals and energy fund. If that’s what you are looking for, you’re better off with GGN or some other option. Another big difference between the two is the use of leverage. GGN uses leverage, GNT does not. That could limit performance at GNT in an up market, but won’t exacerbate losses in a down market. And since weak gold prices and recently plummeting oil prices have been a big issue for the fund, that’s not such a bad thing right now. GNT, however, does make use of options, like its sibling, to meet its primary goal of income generation. That’s why income investors should like this CEF and its monthly dividend. Currently it’s paying $0.07 a share, a reduction from $0.09 a share paid in December. The yield based on the lowered dividend is a touch over 10%. Although that’s nothing to sneer at, GGN’s yield is closer to 12%. But that higher yield comes with the added risk of leverage and with a less diversified portfolio mandate. A trade off worth spending some time considering. But don’t forget the dividend cut, because such dividend changes are a risk inherent to both CEFs. On sale Last year wasn’t any kinder to GNT than it was to GGN (down nearly 24%), with GNT shares falling around 22% (total return, which includes dividends was a loss of around 13%). That’s largely because commodities of all sorts were out of favor. Gold, for example, has been a laggard for some time and oil’s quick fall is filling the headlines right now. However, such hard assets, including other commodities like food, can be a haven in a storm. Gold, for example, is an inflation hedge and a safety vest when the market gets stormy. It’s why asset allocation models include such securities, they provide diversification. That doesn’t mean load up on either GGN or GNT, but it does mean that adding a little of either to an otherwise diversified portfolio could be a good long-term decision. And now is a good time to consider it if you haven’t already. First off, the fund had a bad year last year because the sectors on which it focuses underperformed. There are various reasons for that, and fear of further downside risk could keep you away, but it also means that these sectors are on sale. If you wanted to own them, but haven’t pulled the trigger, they’re cheap right now. But that’s not the only sale going on. GNT is a closed-end fund, which means its market price often deviates from its net asset value, or NAV. NAV is the actual value of what GNT owns on a per share basis. Over the last couple of years, GNT has traded at a discount to its NAV in late December and early January, with the gap narrowing as the new year progresses. Investors selling shares that have gone down in value to lock in losses for tax purposes is a part of this. The discount is currently nearly 9%, larger than sibling GGN’s 5% or so. And while GNT doesn’t have as long a history, the trends for the two are roughly similar. So you could view GNT as being on double mark down. That allows you to pick up a high yield, the chance for the discount to narrow, and exposure to out of favor hard assets. Very similar to what GGN offers, but without the leverage and with a bit more portfolio level diversification. Author’s Note: The comments on the GGN article referenced above brought up some valid points that will be similar for GNT for long-term investors. They are worth a read if you haven’t seen them. This article, like the one about GGN, speaks more to new investors. I plan to address some of the thoughts presented by long-term investors in a future article. It’s number four or five in the cue of ideas brought out by recent comments on articles I’ve written. And I want to thank those who have respectfully disagreed with me. Respectful discussion makes this community better and more fun. Scalper1 News